WASHINGTON, D.C. (August 20, 2009) —
The delinquency rate for mortgage loans on one-to-four-unit residential
properties rose to a seasonally adjusted rate of 9.24 percent of all
loans outstanding as of the end of the second quarter of 2009, up 12
basis points from the first quarter of 2009, and up 283 basis points
from one year ago, according to the Mortgage Bankers Association’s
(MBA) National Delinquency Survey. The non-seasonally adjusted
delinquency rate increased 64 basis points from 8.22 percent in the
first quarter of 2009 to 8.86 percent this quarter.

Top Line Results

The delinquency rate breaks the record set last quarter. The records are based on MBA data dating back to 1972.

The
delinquency rate includes loans that are at least one payment past due
but does not include loans somewhere in the process of foreclosure.
The percentage of loans in the foreclosure process at the end of the
second quarter was 4.30 percent, an increase of 45 basis points from
the first quarter of 2009 and 155 basis points from one year ago. The
combined percentage of loans in foreclosure and at least one payment
past due was 13.16 percent on a non-seasonally adjusted basis, the
highest ever recorded in the MBA delinquency survey.

The percentage of loans on which foreclosure actions were started during the second quarter was 1.36 percent, down one basis
point from last quarter and up 28 basis points from one year ago.

The
percentages of loans 90 days or more past due and loans in foreclosure
both set new record highs, breaking records set last quarter. The
percentage of loans 30 days past due is still well below the record set
in the second quarter of 1985.

Increases Driven by Prime Fixed-Rate Loans

“While
the rate of new foreclosures started was essentially unchanged from
last quarter’s record high, there was a major drop in foreclosures on
subprime ARM loans. The drop, however, was offset by increases in the
foreclosure rates on the other types of loans, with prime fixed-rate
loans having the biggest increase. As a sign that mortgage performance
is once again being driven by unemployment, prime fixed-rate loans now
account for one in three foreclosure starts. A year ago they accounted
for one in five. While 41 states had increases in the foreclosure
start rate for prime fixed-rate loans, 43 states had decreases in that
rate for subprime adjustable-rate loans,” said Jay Brinkmann, MBA’s
Chief Economist.

“The states of California, Florida, Arizona and
Nevada continue to have a disproportionately high share of foreclosure
starts, although the share has fallen slightly from last quarter.
Those four states had 44 percent of all of the nation’s new
foreclosures during the second quarter of this year, down from 46
percent in the first quarter.

“Florida continues to establish itself as the
worst state in the union for mortgage performance, closely followed
only by Nevada. In Florida 12 percent of mortgages were somewhere in
the process of foreclosure, the highest in the nation, and another 5
percent were at least 90 days past due as of the end of June. A total
of 22.8 percent were delinquent at least one payment or in the process
of foreclosure, which is almost twice the national percentage if the
Florida numbers are excluded. In contrast, the next highest states are
Nevada at 21.3 percent, Arizona at 16.3 percent and Michigan at 15.8
percent.

“We also saw a major jump in FHA foreclosures.
The percentage of loans with foreclosures started, the percentage of
loans in foreclosure and the percentage of loans 90 days or more past
due are all records for FHA. While the foreclosure starts rate for FHA
loans at 1.15 percent is lower than all other loan types with the
exception of prime fixed-rate loans, the FHA percentages have remained
low due to a large increase in the number of loans outstanding, the
so-called “denominator effect”. If the number of FHA loans had stayed
the same as a year ago and we saw the same number of foreclosures, the
FHA foreclosure rate would be almost 1.5 percent.

“As for the outlook, it is unlikely we will see
meaningful reductions in the foreclosure and delinquency rates until
the employment situation improves. In addition, in some areas where a
number of borrowers have mortgages that are larger than the current
value of their homes, any life events such a divorce or loss of a job
are likely to translate into foreclosures until prices in those areas
recover, not just flatten.

“Finally, while the various loan modification
programs continue to have an impact on holding foreclosure rates below
where they otherwise would be, the issue is that many of the
foreclosures involve homes that are vacant, borrowers who no longer
have jobs, or loans where there was fraud involved. Therefore, in
measuring the effectiveness of industry or government loan modification
programs it is necessary to compare the results not with the total
foreclosure and delinquency numbers reported here but with the smaller
subset of borrowers who can and want to qualify,” Brinkmann said.

The seriously delinquent rate, the
non-seasonally adjusted percentage of loans that are 90 days or more
delinquent, or in the process of foreclosure, was up from both last
quarter and from last year. This measure is designed to account for
inter-company differences on when a loan enters the foreclosure
process.

Compared with the second quarter of 2008, the
percentage of loans in the process of foreclosure increased 158 basis
points for prime loans and 324 basis points for subprime loans. The
rate increased 74 basis points for FHA loans and 74 basis points for VA
loans.

If you are a member of the media and would like a copy of the survey, please contact Carolyn Kemp at ckemp@mortgagebankers.org or John Mechem at jmechem@mortgagebankers.org. If you are not a member of the media and would like to purchase the survey, please call (800) 348-8653.

Vienna has passed Zurich to take the top spot as the world’s city with the best quality of living, according to theMercer 2009 Quality of Living Survey.Geneva retains its position in third place, while Vancouver and Auckland are now joint fourth in the rankings.

Overall, European cities continue to dominate the top locations in this year’s survey. In the UK, London ranks at 38, while Birmingham and Glasgow are jointly at 56. In the US, the highest ranking entry is Honolulu at position 29.Singapore (26) is the top-scoring Asian city followed by Tokyo at 35. Baghdad, ranking 215, remains at the bottom of the table.

The rankings are based on a point-scoring index, which sees Vienna score 108.6, and Baghdad 14.4. Cities are ranked against New York as the base city with an index score of 100. Mercer’s Quality of Living ranking covers 215 cities and isconducted to help governments and major companies place employees on international assignments.See top 50 quality of living rankings below.

Slagin Parakatil, senior researcher at Mercer, commented: “As a result of the current financial crisis, multinationals are looking to review their international assignment policies with a view to cutting costs.”

“Many companies plan to reduce the number of medium to long-term international assignments and localise their expatriate compensation packages where possible though the hardship allowance, based on quality of living criteria, will remain an essential component of the package,” he added.

This year’s ranking also identifies the cities with the best infrastructure based on electricity supply, water availability, telephone and mail services, public transport provision, traffic congestion and the range of international flights from local airports.

Singapore is at the top of this index (score 109.1) followed by Munich in second place and Copenhagen in third. Japanese cities Tsukuba (4) and Yokohama (5) fill the next two slots, whilst Dusseldorf and Vancouver share sixth place. Baghdad ranks at the bottom of the table with a score of only 19.6. See top 50 infrastructure rankings below

Mr Parakatil commented: “Infrastructure has a significant effect on the quality of living experienced by expatriates. Whilst often taken for granted when functioning to a high standard, a city’s infrastructure can generate severe hardship when it is lacking. Companies need to provide adequate allowances to compensate their international workers for these and other hardships.”

Americas

There have been few changes in the rankings for North American cities.Canadian cities still dominate the top of the index for this region. Vancouver (4) retains the top spot and Honolulu (29) is the city in the United States with the highest quality of living. Washington and New York remain in positions 44 and 49 respectively.

In Central and South America, San Juan in Puerto Rico retains the highest ranking at 72, followed by Montevideo at 79. Port au Prince (206) in Haiti continues to rank lowest in the region and has gone down four places in the overall ranking due to food shortages experienced in 2008 and the subsequent riots.

Mr Parakatil commented: “A number of South and Central American countries have experienced positive changes. But on the whole, political and security issues, and the incidence of natural disasters, continue to hinder the improvement of quality of living in the region. Shortages of consumer goods have also contributed to a decline in quality of living in some cities.”

In terms of city infrastructure, Vancouver (6) again tops the ranking for the whole of the region, with Atlanta following in position 15. Santiago in Chile has the best city infrastructure in Central and South America, whereas Port au Prince is again the lowest ranking at 212.

Europe

Europe’s cities once more dominate the world’s top 10 for quality of living. Vienna is the city rated with the best quality of living worldwide, moving up one place in the rankings following improvements in Austria’s political and social environment. The rest of the top 10 for Europe are dominated by German and Swiss cities, most of them retaining last year’s ranking and scores. Zurich, in second place, is followed by Geneva (3), Dusseldorf (6), Munich (7), Frankfurt (8) and Bern (9).

Many Eastern European cities have seen an increase in quality of living. A number of countries which joined the European Union back in 2004 have experienced consistent improvement with increased stability, rising living standards and greater availability of international consumer goods. Ljubljana in Slovenia, for example, moves up four places to reach 78 while Bratislava moves up three places to 88. Zagreb moves three places to 103.

In the city infrastructure index, German cities fair particularly well with Munich (2) the highest ranked in the region, followed by Dusseldorf (6) and Frankfurt in joint eighth place with London. “German city infrastructure is amongst the best in the world, in part due to its first class airport facilities and connections to other international destinations” said Mr Parakatil.

London’s ranking in the infrastructure index reflects the high level of public services offered, with its extensive public transport network and wide variety of telecommunication services.

Middle East and Africa

Dubai (77) in the United Arab Emirates and Port Louis in Mauritius (82) are the region’s cities with the best quality of living. Dubai’s transport facilities have witnessed improvements, with the development of its road infrastructure and expansion of its international airport, and the city is up six places in the ranking.

Cape Town in South Africa, previously the city in the region with the best quality of living, has dropped substantially in this year’s ratings (from 80 to 87 in 2009). This move follows violent riots in South Africa’s main cities in 2008.

Baghdad (215) retains its position at the bottom of the table, though its index score has increased (from 13.5 to 14.4 in 2009) due to some slight improvements in its infrastructure and steps taken to encourage investment. Nevertheless, the lack of security and stability continue to have a large impact on quality of living and the city’s score remains far behind Bangui (29.3) in the Central African Republic, which is second to last.

In the city infrastructure index, most of the region’s cities rank below 100. The exceptions are Dubai (35),Tel Aviv (55) Jerusalem (70), Abu Dhabi (72), Port Louis in Mauritius (92) and Cairo (93). Baghdad (215) is again at the bottom of the list with a city infrastructure score of 19.6, while Port Harcourt in Nigeria is at 214, scoring 30.5.

Mr Parakatil continued: “Many countries on the African continent are experiencing continued political and economic unrest, making life for expatriates very difficult. This is generally reflected in the higher compensation and benefits packages offered there by multinationals, compared to other regions of the world.”

Asia Pacific

Auckland (4) retains its position as the highest ranking city for quality of living in the region. Sydney follows at 10 and Wellington in New Zealand at 12. While the majority of the region’s cities retain a similar ranking to last year,Singapore (26) is the region’s highest riser, up six places since 2008. The city has gained importance as a financial centre and offers a wide range of international and private schools to cater to its expatriate community. Beijing has also moved three places in the ranking, up from 116 to 113, mainly due to improvements in public transport facilities from the Olympic Games last August.

Dropping down in the rankings, mainly due to a decline in stability and security are Bangkok (from 109 in 2008 to 120) and Mumbai (from 142 to 148). Thailand’s political turmoil continued throughout 2008 and 2009 with frequent and violent demonstrations and rallies taking place in Bangkok. Terrorist attacks in Mumbai have led to the city’s decline in quality of living for expatriates. Dhaka in Bangladesh holds the lowest ranking in the region at 205.

Mr Parakatil commented: “As a region, Asia Pacific is highly diverse. Recent political unrest and terrorist attacks in some cities in the region have negatively impacted the quality of living there. In addition to providing an appropriate hardship allowance, companies need to make sure they review their expatriate strategies by implementing specific safety measures such as ensuring their expatriates’ accommodation is under surveillance and providing effective channels of communication should evacuation be necessary.”

For city infrastructure, Singapore has the highest score world-wide (109.1). The city boasts an airport with excellent facilities and connections, as well as an efficient and extensive public transport network. Other high rankers in the region include Hong Kong (8), Sydney (11) and Tokyo (12). Dhaka ranks lowest in the region at 197.

Notes for Editors

The worldwide rankings are produced from the most recent Worldwide Quality of Living Survey, conducted by Mercer. Individual reports are produced for each city surveyed. Comparative quality of living indexes between a base city and a host city are available, as are multiple city comparisons.

Data was largely collected between September and November 2008 and is regularly updated to take account of changing circumstances. In particular, the assessments are revised in the case of any new developments. The Mercer database contains more than 420 cities, however only 215 cities have been considered for the quality of living 2008 ranking in order to compare them from one year to the next.

Compensating expatriates to live and work in difficult locations: determining appropriate allowances and incentives

The provision of incentives to reward and recognise the efforts that employees and their families make when taking on international assignments remains a typical practice, particularly for difficult locations. Common incentives include a quality of living allowance and mobility premium. Companies need to be able to determine their compensation package in a rational, consistent and systematic way.

Quality of living or hardship allowances are designed to compensate expatriates for differences in the quality of living between their home and host locations. The mobility premium is more intended to compensate for the inconvenience of being uprooted and having to work in another country. The former is typically location-related whilst a mobility premium is usually independent of the host location. A number of major international companies combine these premiums but the vast majority of international companies provide them separately. The latter approach has the advantage of clarity and transparency.

Mercer hardship allowance recommendations

Mercer evaluates local living conditions in all the 420 cities it surveys worldwide. Living conditions are analysed according to 39 factors, grouped in 10 categories:

Political and social environment (political stability, crime, law enforcement, etc)

The scores attributed to each factor allow for city-to-city comparisons to be made. The result is a Quality of Living Index which compares the relative differences between any two locations. For the indices to be used in a practical manner, Mercer has created a grid that allows companies to link the resulting index to a Quality of Living Allowance amount by recommending a percentage value in relation to the index.

The followinglist of rankingsis provided to journalists for reference, and should not be published in full. The top 10 and bottom 10 cities in either list may be reproduced in a table.

Top 50 rankings - City infrastructure

* City Infrastructure Ranking 2009 includes the following criteria: electricity, water availability, telephone, mail, public transport, traffic congestion and airport.

Rank 2009

City

Country

Index* 2009

1

SINGAPORE

SINGAPORE

109.1

2

MUNICH

GERMANY

106.5

3

COPENHAGEN

DENMARK

106.2

4

TSUKUBA

JAPAN

105.5

5

YOKOHAMA

JAPAN

105.1

6

DUSSELDORF

GERMANY

105

6

VANCOUVER

CANADA

105

8

FRANKFURT

GERMANY

104.8

8

HONG KONG

HONG KONG

104.8

8

LONDON

UNITED KINGDOM

104.8

11

SYDNEY

AUSTRALIA

104

12

TOKYO

JAPAN

103.4

13

PARIS

FRANCE

103.1

14

ZURICH

SWITZERLAND

102.6

15

ATLANTA, GA

UNITED STATES

102.3

15

BERN

SWITZERLAND

102.3

15

MONTREAL

CANADA

102.3

18

TORONTO

CANADA

101.9

18

VIENNA

AUSTRIA

101.9

20

HAMBURG

GERMANY

101.5

20

HELSINKI

FINLAND

101.5

20

OSLO

NORWAY

101.5

20

STOCKHOLM

SWEDEN

101.5

24

BRUSSELS

BELGIUM

101.2

24

WASHINGTON, DC

UNITED STATES

101.2

26

AMSTERDAM

NETHERLANDS

101

27

NURNBERG

GERMANY

100.5

28

CHICAGO, IL

UNITED STATES

100.3

29

BERLIN

GERMANY

100.1

29

NAGOYA

JAPAN

100.1

29

OSAKA

JAPAN

100.1

32

NEW YORK CITY, NY

UNITED STATES

100

33

BOSTON, MA

UNITED STATES

99.9

34

KOBE

JAPAN

99.4

35

DUBAI

UNITED ARAB EMIRATES

99.2

35

GENEVA

SWITZERLAND

99.2

35

MELBOURNE

AUSTRALIA

99.2

38

ADELAIDE

AUSTRALIA

98.9

38

BRISBANE

AUSTRALIA

98.9

38

PERTH

AUSTRALIA

98.9

41

HONOLULU, HI

UNITED STATES

98.6

42

OTTAWA

CANADA

98.5

43

AUCKLAND

NEW ZEALAND

98.1

43

MADRID

SPAIN

98.1

45

BIRMINGHAM

UNITED KINGDOM

97.8

45

GLASGOW

UNITED KINGDOM

97.8

47

MIAMI, FL

UNITED STATES

97.3

47

WELLINGTON

NEW ZEALAND

97.3

49

HOUSTON, TX

UNITED STATES

96.5

49

MILAN

ITALY

96.5

49

SEATTLE, WA

UNITED STATES

96.5

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit www.mercer.com

From Note Seller by Fred and Tracy Z. Rewey

When people go to sell their home, the majority will still owe money on
a loan from when they bought the property. Since few sellers own a
property free and clear, what to do with this underlying lien is an
important consideration with owner financing.

A title report from a reputable title company will identify any debts
against the property still owed by the seller or any prior owners. In a
traditional transaction, the seller’s liens against the property are
paid off at closing from either the cash funds deposited by the buyer
or the funds advanced by the lender for the buyer’s new loan.

With a seller-financed transaction it is unlikely the buyer will
deposit sufficient down payment funds at closing to pay off the
underlying liens from the seller’s proceeds. If the seller’s liens are
to remain after closing, also known as a wraparound, there are several
important considerations.

First, most loan documents contain some type of “due
on sale clause.”

A due on sale clause states that if the property
ownership is transferred the lender can call the outstanding balance
plus any accrued interest due and demand immediate payment in full.

There are many creative strategies that have been employed to avoid
triggering a lender’s due on sale clause. The use of unrecorded real
estate contracts, purchase by a trust entity, and use of third-party
administrator are just a few.

While there are no guarantees, from a practical approach, lenders
seldom exercise their due on sale clause provided the payments are
received timely and other note terms, such as current taxes and
insurance, are in compliance.

Nonetheless, the lender has the right and
this has the potential to cause subsequent problems. A competent
attorney or title agency can provide wrap around disclosure language
for the documents, making all parties aware of the situation.

Second, it is imperative to make arrangements for
timely payment of the seller’s underlying lien from the purchaser’s
monthly payment. It is a trusting fool that sends their payment each
month directly to the seller and hopes the seller promptly sends on
their portion to the lender. What if the seller forgets, or worse, gets
in a financial bind and uses the money that month for other expenses?

When using seller financing with a wraparound situation, it is
advisable to use the services of a third-party escrow or servicing
agent. The third party will receive the monthly payment on the note
from the new purchaser, apply to principal and interest, and then
disburse the appropriate payment to the underlying lien holder, with
any difference or overage remitted to the seller.

Janet Tavakoli, an expert in complex derivative securities and the author of Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street recently sat down with Steve Forbes to discuss the lingering financial crisis and the future of Wall Street's
banks. Tavakoli, who saw trouble brewing way back in 2005, believes
that we still need an accounting of the crisis and maybe some perp
walks for bank executives.

Currently, Tavakoli is especially skeptical of prospects for

JP Morgan Chase

, one of the banks that has best weathered the crisis thanks to Chief Executive Jamie Dimon's "fortress balance sheet" strategy.

On Dimon, Tavakoli remarked: "He didn't talk about credit cards. He
was very quick to talk about mortgage brokers and predatory practices
among mortgage brokers. But we've had a lot of predatory practices in
credit cards."

She then predicted that as unemployment rates continue to rise (and
they will, even after the economy bottoms) people with high-interest
credit cards "are going to walk away from that debt and the charge-offs
will be higher than he's recommended. Furthermore, he didn't talk about
predatory practices like targeting people who are in bankruptcy or
people who are just exiting bankruptcy."

Card issuers actually like to give high-fee credit to people in or
just out of bankruptcy because a debtor can only seek personal
bankruptcy protection once every eight years.

After her interview, Tavakoli sent a short essay to Steve Forbes
outlining her belief that the financial system was laid low by
predatory lending and predatory securitization. Her essay expanded on
the themes of the Intelligent Investing interview (you can watch it here)
and we offer these relevant excerpts from her essay for those who'd
like to know more about how we got here and what's to come:

"As the mortgage bubble inflated, the motivations and viability of
thinly capitalized mortgage lenders were not challenged. The explosion
of predatory loan products--unprecedented in the risk they posed--was
unchecked by regulators. Regulators seemed to actively ignore the
shocking slippage in underwriting standards by our former investment
banks and other financial institutions. Furthermore, dodgy practices
still pervade large pockets of mortgage lending, credit cards and auto
loans. Excessive leverage combined with riskier loan products in
commercial mortgage lending and corporate lending have exacerbated the
crisis.

Regulators failed to make sure banks maintained adequate capital
cushions, and managers of financial institutions failed in their duty
of care. But the global financial meltdown is not the result of an
unfortunate mathematical error or an errant model. Predatory lending
and predatory securitizations combined with excessive leverage and
dodgy accounting contributed to our current crisis. This was not an
innocent mistake. Rather Wall Street's
financiers fed models misleading data to concoct securitizations in
financial meth labs that both hid losses and destroyed value. There
were no outliers, just outright liars."

In her interview, Tavakoli called for the regulation and compression
of the credit default swap market, something that's actually occurring
as the Intercontinental Exchange works to build the first transparent CDS exchange. Until recently, these transactions were all entirely private.

But that's not enough for Tavakoli, who'd like to see stricter
regulation on the securitization and issuance of credit and credit
products. Without that, she says, "Capitalism as we knew it will
eventually perish. It will be permanently replaced by a financial
sector oligarchy that holds sway over a once democratic government that
failed to protect our money."

Is there a rainy day in your personal job forecast? That wouldn't be
surprising -- with unemployment rates in double digits in several
states, 8.2 percent nationwide and widely expected to hit 10 percent or
higher by next year.

Nor would it be surprising if uncertainty about your income is a
major barrier keeping you out of the home-buying market this spring.
That's why a previously obscure charitable group based in the District,
the Rainy Day Foundation, suddenly is doing a booming business in
what's called the mortgage payment protection niche.

According to its chief executive, Rick Del Sontro, Rainy Day is
offering free job-loss protection coverage and home buyer financial
counseling through approximately 100 builders and lenders across the
country, plus two large real estate brokerages.

Some of the clients and partners are big: Long & Foster Real
Estate is the largest independent brokerage in the country, according
to industry estimates. Builder Lennar is active in 17 states including
California, Florida, Arizona, the Carolinas, Illinois, and the
metropolitan Washington area. Keller Williams, whose South Florida
affiliate began offering coverage earlier this month, is the
third-largest real estate franchise firm in the United States.

Here's how the Rainy Day plan works: People buying homes through a
participating builder, lender or real estate agency can qualify for up
to six months of mortgage payments -- capped at $1,800 per month in
some versions and $2,500 in others -- if they lose their job during the
two years following their closing. There is no direct cost to the
buyer. The insurance coverage is underwritten by Virginia Surety.

Buyers can also receive pre-purchase financial education and
periodic post-closing check-ins by Rainy Day counselors. Purchasers may
also be eligible to receive "emergency fund" grants from Rainy Day if
they encounter short-term financial drains such as unexpected medical
bills.

The emergency fund, which Del Sontro estimates will pay out $8
million to homeowners in 2009 -- up from $4 million last year -- is
designed to "bridge the gap" and keep full payments flowing for a month
or two following an unanticipated financial problem. If the owners only
have $1,000 available in a given month, but their mortgage bill is
$1,500, Rainy Day contributes the missing $500.

The emergency grants are not extended to everyone who is in a jam:
Rainy Day won't provide extra money when individuals have been
financially reckless. Nor will it give grants in divorce or separation
situations, or other problems attributable to actions by the homeowners
themselves.

Lenders and builders pay $550 or more to Rainy Day for each
participant in the plan. The money funds the premiums for the basic
insurance coverage as well as the emergency fund.

Rainy Day is hardly the only job-loss protection program in the
housing field. Mortgage payment coverage has been available through
some insurance companies, lenders and mortgage brokers for years at
varying costs. But with unemployment now at quarter-century highs, Del
Sontro said "at this point we can't handle all the calls we're getting"
from lenders, builders and consumers who want to sign up.

Toll Brothers, a publicly traded luxury builder with 250 projects in
21 states, recently began a major push with its own version of the
idea, offering maximum payment coverage up to $2,500 a month for six
months over a two-year period. Toll's national marketing director, Kira
McCarron, said that although removing the financial fears of potential
buyers "is important, we see [the mortgage protection plan] as just one
tool in the toolbox" to sell new houses in 2009.

-- Though there's no direct cost to the buyer, that doesn't mean it
hasn't been tacked on subtly somewhere in the deal, possibly in the
price from the seller or builder.

-- There are key exclusions and coverage limits. For instance, the
Rainy Day program doesn't kick in for two months after closing.
Self-employed persons, independent contractors and active military
members are not eligible. There's a 30-day waiting period after you
lose your job before the first insurance payment is made.

-- The Toll Brothers plan is available only to buyers who use the
company's affiliated lender, TBI Mortgage. Consumers who know of a
forthcoming layoff or "any impending job loss" are ineligible. The
program excludes loss of income through voluntary resignations,
"willful misconduct" and seasonal shutdowns.

Thanks to declining mortgage interest rates and housing values, these
days it's a lot less expensive to buy a home. On the other hand, it's
also less expensive to rent.

Sometimes deciding whether to rent or buy is easy. If you're not
planning to live in the same neighborhood, city or state for more than
five years, renting becomes the more economical option. If you are
likely to change jobs or careers and your income might going down,
renting is a safer choice.

And if your family needs are changing or will change dramatically
over the next five to seven years, you might be better off renting the
size home you'll need over the next few years rather than buying one
that your family will outgrow.

(There's an old real estate joke: If you want to get married, buy a studio apartment.)

My friend Josh is trying to make the rent vs. buy decision. He
shared with me a fancy spreadsheet he created to weigh factors like the
opportunity cost of his cash down payment.

Opportunity cost is a business term that essentially compares how
much you would earn on your cash if you invested it in one type of
investment vs. another. In this case, Josh is trying to determine what
he would earn on his cash if he left it in a certificate of deposit
rather than using it as a down payment.

He also looked at the costs of buying, financing and selling the
property. Loan fees have risen sharply in the wake of the housing and
credit crisis. He also had to add in the cost of taxes (not just
property taxes, but also local stamp taxes and other taxes and fees
charged for escrow accounts). He adjusted the costs upward to include
annual maintenance, and I thought he should have added in a few extra
bucks to repaint the property when it comes time to sell. After
factoring in the costs of buying, financing and selling the property,
he then projected that housing prices would continue to fall a little
before starting to rise modestly over the next five years.

When Josh compared all of this with the costs of simply renting a
similar property, he came to the conclusion that over the first five
years, renting is far less expensive than buying a property. In fact,
he believes that he would save tens of thousands of dollars simply by
renting rather than buying.

But the calculus changes as the years go on and positive
appreciation kicks in. At about the five-year mark, buying a home
starts to look like a smarter (and less expensive) move than renting.

In fact, that's how real estate should be thought of -- as a
longer-term investment. It's only been in the past half-dozen years
that the get-rich-quick, no-money-down, flip-for-profit thinking has
moved the masses to buy property. Creative and exotic mortgage
financing techniques helped those who might not have been able to
afford it to buy their dream primary, vacation or rental property.

Historically, agents would tell their buyers that they should plan
to live for five to seven years in the home they buy to make money on
it. So Josh's calculations prove the old rule: In the long run, buying
the right house at the right price with the right financing for the
right reasons can make sense financially.

What really changes things is the $8,000 refundable tax credit for
first-time buyers or for those who haven't owned a home in the past
three years. If you purchase and close on a first home by Dec. 1 and
plan to live there as your primary residence, you can qualify for up to
an $8,000 refundable tax credit.

When you factor in that gift of $8,000 from Uncle Sam, it makes the economics look even better for a longer-term purchase.

QMy fiance and I want to buy a condo for $160,000. I am 20, and
he is 21. We both have credit scores around 700. I work full time at a
bank. He is a full-time student and works part time. He will be
graduating in one year, and we are getting married this summer. Do you
think we will be able to get a mortgage with a $7,500 down payment?

AYou may not be able to qualify for a mortgage.

For the most part, your best loan option might be a Federal Housing
Administration loan because of the size of the down payment. As for
most other loan products, you may find it difficult to secure a loan
with a low down payment.

FHA loans require just 3.5 percent in cash for a down payment, lower
than conventional lenders. That means $5,600 on a $160,000 home
purchase. You also have to be able to afford the payments. On a
30-year, fixed-rate mortgage at 5 percent, your monthly payments would
be about $840, plus real estate taxes and insurance.

Keep in mind that recent loan guidelines may make obtaining a loan
to buy a condo more expensive. In some cases, interest rates on loans
for condos can be up to one-half a percentage point higher than for
non-condo loans. And you may need to have a bigger cash down payment.

If you assume that your real estate taxes are $3,600, or $300 per
month, and your homeowners insurance is $1,800, or $150 per month, your
total monthly expenses would be about $1,290. Factor in condo or
homeowners association fees. Those, along with your mortgage, real
estate taxes, and homeowners insurance premiums, have to fall below 36
percent of your gross monthly income, with very few exceptions.

While 700 is a good credit score, it's not a great score. Some
lenders are looking for borrowers to have at least a 720 credit score
to get the best rates.

You should check your credit history by obtaining a free copy at http://www.annualfreecreditreport.com
to make sure your credit history is accurate. Then try to determine
where you are losing points. Do you have too much debt? Have you paid
any bills late? Do you have too many credit cards with high limits? Or
is it that you haven't had time to build credit histories?

It may make sense to wait until he is done with school or has at
least secured a job. Waiting another year to buy would give you time to
raise your credit scores and save more money. Once your fiance gets a
job and the two of you get past the wedding, you may find that you have
a clearer idea of where you want to live for the next five to seven
years, or longer.

If you decide to pursue buying property now, speak with a mortgage
lender to see what options you may have. You may be pleasantly
surprised to find that you and your fiance will qualify for a nice
starter home. If not, at least you'll know what you have to do to get
ready to buy down the road.

My mom is 92 years old, competent and in an assisted-living
facility. She has a life estate. My sister and I are the remaindermen.
My mom wants to sell her home to a grandson. When this house is sold,
who is entitled to the money from the sale?

Your mother has a life estate in the home but is no longer the owner of
the underlying property. She would be entitled to get and keep the
money from the sale of her life estate. Her grandson would be entitled
to use the property while she is alive.

At your mother's death, the grandson's interest in the home would
end, and you and your sister would own the home. A life estate is an
interest in a property for the life of the person who receives it. It
does not transfer to another person.

As people age, the value of a life estate becomes less and less.
While we hope that your mother has many years to live, it is unlikely
that buying a life estate would be a good move for her grandson. It
would be easier if the grandson simply rented the property or looked
for a different home to buy.

About one year ago, my daughter bought a mobile home with a friend.
They both signed the mortgage. Just recently, her friend decided to
move out. My daughter is not sure what she needs to do to remove her
friend's name from this mortgage. Would a quitclaim deed take care of
this?

Your daughter's friend could quitclaim her interest in the property to
your daughter, but that would transfer only the ownership interest. The
mortgage would still remain in both of their names until the loan is
paid off or refinanced -- or until the lender agrees to remove the
friend's name from the mortgage. Most lenders will not remove the name
of one of the parties from a mortgage.

If the home is actually a recreational vehicle that is driven around
the country, the friend would need to sign over the certificate of
title to the vehicle and give her a bill of sale for her interest. But
here again, the transfer won't release her friend from her obligations
on the loan.

Assuming it's a traditional mobile home (also known as a
manufactured home) that is placed permanently on a piece of land, your
daughter should work with her friend to quitclaim the property into her
name and refinance the loan so that the friend is off the mortgage and
title.

If your daughter can't afford to refinance the mobile home on her
own, then she will need to work with her friend to try to sell it or
rent out the friend's bedroom to bring in enough cash to make the
mortgage payments.

For more details, please consult with a real estate lawyer.

Ilyce R. Glink is an author and nationally syndicated columnist. Her
latest book is "100 Questions Every First-Time Home Buyer Should Ask."
Samuel J. Tamkin is a real estate lawyer in Chicago. If you have
questions for them, write Real Estate Matters Syndicate, P.O. Box 366,
Glencoe, Ill. 60022, or contact them through Glink's Web sites, http://www.thinkglink.com and http://www.expertrealestatetips.net.

You don't want to overpay for that three-bedroom, two-bath house. But
the similar one down the block that sold last month was a foreclosure,
and not a lot else has changed hands recently in the neighborhood.

So how do you figure out how much to offer?

The people whose job it is to determine what a home is worth are finding the market challenging, too.

"I've been doing this for 23 years and haven't seen anything quite
like this," said Bruce Flanagan Jr. of Flanagan Associates in Bethesda.
Real estate agents are even calling for his help in figuring out the
proper list price for a home, he said.

When determining value is difficult for even the people who do it
regularly, it's a good idea to look at what the pros do. Appraisers
usually determine the value of a home by examining recent sales of
comparable homes -- that is, homes that are in the same neighborhood
and roughly the same size and quality. In a challenging market they
might expand their search to include less-similar homes or those that
are farther away.

For these homes, they gather points of comparison. How big is the
above-ground living area? How many bedrooms and bathrooms? Swimming
pool? Finished basement? Parking? For a condo, what floor is it on?

Homeowners can generally get information about what has been sold
and listed recently online or from real estate agents. John Brenan,
director of research for the Appraisal Foundation, recommends working
with agents who are knowledgeable about the area as well as doing your
own research. If you're not sure what's going on in a market, call the
brokers whose names are on for-sale signs and ask them for data about
how many homes have been listed in the past year, average days on the
market and median list prices.

"There are tremendous opportunities in a down market for a buyer,
but they have to be prepared to do their homework," Brenan said.

Nicole Harkin and her husband, Brent Lattin, are doing a lot of
their own investigating as they search for a house in the District.
They have been looking on and off for about two years, don't want a
condo and don't want to pay more than $650,000. Harkin and Lattin check
the city Web site to see what a house's past owners paid.

"The way we determine whether or not we would buy a place is more
looking at what the value of the house was in 2003, because it just
seems somewhat ridiculous that prices went up as high as they did,"
Harkin said.

That approach may work in some instances, Flanagan said, but it's
impossible to tell whether a house is at its 2003 price, its 2005 price
or just its 2009 price, except in retrospect. The best way to determine
value, he said, is to follow appraisers' methods in looking at
comparable sales.

An appraisal is designed to reflect the value of a house, not set
it, so basing an offer on one doesn't mean that your house won't gain
or lose value. "It's basically what the house is worth on the day we
walk through it," said Gary Denny of Woodbridge Appraisal, president of
the Northern Virginia chapter of the National Association of
Independent Fee Appraisers.

Some potential buyers look at Web sites such as Zillow and HomeGain, which use mathematical formulas to place a value on homes.

Stan Humphries, the vice president of data and analytics at Zillow,
said his site uses a variety of formulas to come up with its take on a
home's value. It does not include data from distressed sales, such as
foreclosures and short sales, because it does not consider them
reflective of the market. He sees a Zillow estimate as complementary to
an appraisal.

"The output is we think a good starting point for valuation on a
home. Given the fact that we've not been in the house and we're not on
the ground there . . . with an automated process like that, there is
some error," he said.

Louis Cammarosano, general manager of HomeGain, said that his
company's goal is to connect potential buyers and sellers with real
estate agents, and that the values on its site are just a starting
point.

Flanagan doesn't see much utility for potential buyers in such sites -- particularly in older areas, like much of this region.

"You can have a renovated house next door to a gut job or a
burnt-out shell and have hundreds of thousands of dollars of
difference," Flanagan said.

Markets where not much is happening are harder to analyze than ones
where there is still some action. Take the best information available,
the experts said.

"If you're in a small neighborhood and you don't have the sales you
need to make the appraisal and set the value, you're just going to move
farther out," said James Soresi, supervisor of assessments for Prince George's County.

Assessors work differently than appraisers, sampling homes in a
neighborhood and then applying a value across the board to come up with
a tax assessment. That assessment most likely does not take into
account the characteristics of the exact home you're looking at, so it
can be used only as a loose guide.

At the same time appraisers are having to look farther afield,
lenders are getting stricter on what counts as a comparable sale,
Flanagan said. Historically, they have asked appraisers to look at
houses that were bought and sold in the past six months, but now they
want comparable sales from the past 60 days. If there aren't enough
sales in that time, they want adjustments made to the longer-ago
purchase prices based on whether the market has declined.

Foreclosures and short sales are another complicating factor.
Appraisers generally don't want to use distressed sales as comparable
sales, but if the market is almost exclusively made up of foreclosures
and short sales, the appraiser has to decide how to use them.

"If all that has sold is foreclosures and short sales, then they are
the market, so that's what your home is going to be compared to,"
Flanagan said.

Appraisals are generally required by lenders, which want to make
sure they're not giving out more money than a home is worth. If a
bank-ordered appraisal finds that the value is less than the buyer has
offered, the lender can pull out of the loan.

Buyers can insert clauses
in their home-sale contracts that allow them to walk away if an
appraisal comes in low or financing falls through for other reasons.

No matter how much data goes into it, an appraisal doesn't say what
a home is worth to a buyer. If you want to factor in the cost of
replacing a kitchen, you can bid less. If you want to make sure you
move into that particular place, you can bid more.

"In terms of making an offer, that last 5 percent is so subjective,"
said Richard Seaton, a real estate agent with W.C. & A.N. Miller in
the District.

04/25/2009

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